A set of pervasive trends — call them business imperatives — is coursing through the manufacturing market. Globalization, competition, price pressure and... costs — particularly those not directly related to production — continue to rise dramatically. Increasing regulations, healthcare, and legal obligations are, in many cases, offsetting hard-won, automation-enabled productivity benefits... These changes add up to an inflection point for manufacturers because they are not merely a collection of unfortunate yet temporary trends. They are profound, permanent, and industry wide. And they mean one thing: The strategies and competencies which manufacturers have relied upon won't guarantee success or even survival over the next 10 years.
With this clarion call nearly three years ago, Managing Automation launched its Progressive Manufacturing concept (see "The Rise of the Progressive Manufacturer," June 2004). For those new to Managing Automation, Progressive Manufacturing was conceived as a six-point, pro-growth agenda to help manufacturers contend with the realities of globalization, changing rules of competition, and the pervasiveness of technologies. It defines the fundamental business-technology disciplines — competencies, if you will — that manufacturers must master in order to cope with these fundamental forces as well as mounting structural cost disadvantages. Moreover, the concept calls for manufacturers to radically transform their business processes by adopting advanced technologies to interconnect often far-flung manufacturing operations and improve organizational productivity and agility.
Being progressive, MAbelieves, starts with breakthrough business models and market-changing product innovations. It then requires manufacturers to achieve excellence in supply chain management and customer interaction by continually refining and optimizing key business activities. Doing all this, of course, requires manufacturers to build a technology infrastructure that accommodates business process change by providing integrated access to all key data and applications across the extended manufacturing enterprise — including key business partners. And it means that manufacturers must invest in their people — a sorely overlooked but critical aspect of today's information economy — by providing training and education programs to help attract and retain a technically competent and productive workforce. (For full PM definitions, see the sidebar.)
But once the ink was dry on the Progressive Manufacturing concept, MArealized more could be done to help guide manufacturers forward. So, we came up with logical extensions to the PM concept that define manufacturing excellence from the inside looking out, offering even greater insights into the organizational attributes that differentiate industry leaders from laggards and winners from also-rans.
We started with the question: What separates market leaders from not-so-fast followers? The somewhat obvious response: It usually begins with strong and creative leaders — "C" level executives or empowered middle mangers — who individually or through their teams champion more innovative approaches to doing business and keep technology initiatives aligned with strategic objectives. That led us to ask: What operational attributes can help leaders advance sustainable competitive advantage? The answer: appropriate adaptation of theoretical constructs that support continuous business process improvements such as Six Sigma and lean manufacturing.
Accordingly, leadership and operational excellence have been added to Progressive Manufacturing's set of key competencies, bringing to eight the number of disciplines manufacturers must master to survive, if not thrive, in the short term and beyond.
PM supporters and advocates could argue that these additions were already covered, or implied, in the original six disciplines. They would be partly correct, of course, but our feeling was that leadership and operational excellence are so indispensable, so inextricably linked to manufacturing business success, that they require special attention to fully understand — and master.
Why Leadership Counts
Success in today's increasingly regulated, globally transparent, and social responsibility-sensitive world requires an executive leadership team that considers the big picture and connects the dots to balance today's tactical needs and projects with initiatives that are building tomorrow's strategic capabilities and products.
Written in May 2006 by Roddy Martin, vice president at AMR Research, these words get to the heart of the leadership issue. The problem, Martin says, is that despite the long-standing push to tear down departmental barriers and embrace strict business-technology alignment, most manufacturers are still organized around and measured by functional silo performance, which undercuts much-needed internal and business partner collaboration. Company leaders such as the CIO and supply chain honcho are often poles apart operationally and strategically, and are therefore powerless to catalyze change.
"Anheuser-Busch put it appropriately," Martin recalls from a recent conversation with the company. "Companies are still organized in north-south functional islands... they need to be looking at the east-west performance of the business."
Market leaders like Anheuser-Busch, Procter & Gamble, Dell, and Samsung, he suggests, know how to make the operational trade-offs across north-south islands. They do this by providing finance, supply chain, and sales and marketing decision makers with the right information at the right time and in the right form to adapt to ever-changing business circumstances. "They know if they need to do something more expensively, why it is — or if it's profitable to buy something at lower cost," Martin explains.
Success, therefore, demands top-down leadership that imbues the organization with proper roles, goals, and accountability. It comes from leaders who can think through complexity that is exacerbated by global competition and mounting regulatory compliance requirements and still mitigate risk, both operationally and financially, thus connecting the dots and extrapolating a move-forward plan, Martin says. Good leaders also view the organization from the outside looking in, understanding intimately how the company is viewed from the customer's perspective.
Martin points to P&G's concept of "the two moments of truth" — product availability and consumer motivation for buying and using the company's products — as insights that inform decisions made across the entire value chain. "Everything is driven from those moments of truth, which then move back into operations," Martin notes.
Of course, tracking these moments of truth requires a seamlessly integrated IT and factory automation architecture that enables tight intra-enterprise functional and business partner collaboration. But even if the ideal technological foundation is in place, most manufacturers aren't prepared culturally or organizationally to take advantage of it. "Most leadership teams have not boiled down what their moments of truth are, so different groups in the organization are chasing down different agendas," Martin muses.
To overcome this disconnect, manufacturers must deploy strong leaders up and down the organizational chart who will all pull in the same direction, command and encourage their teams to execute against the mission, and think proactively about better ways of doing business. Leaders at more accomplished manufacturers define operational requirements, marshal the requisite resources to accomplish the mission, establish team as well as individual goals, and enforce accountability throughout the organization. Performance is measured using metrics tightly aligned with strategic objectives and informed with just-in-time business and manufacturing intelligence that lets leaders know when to pre-empt failure or how to maximize success.
If you're thinking this can only be accomplished with supermen and -women, you'd be wrong. "I'm a subscriber to the Jim Collins notion of the quiet leader," says Bob Parker, vice president of research at Manufacturing Insights, invoking the name of the noted author whose book, Good to Great: Why Some Companies Make the Leap... And Others Don't, has become required reading within the executive suite. That notion, Parker explains, is "walk softly and carry a big spreadsheet."
Today's manufacturing industry leaders are challenged to understand a market that not only extends across the street and down the block, but clear across the country, into the Southern Hemisphere, and across oceans. It's not enough, Parker says, to chase savings in the low-cost labor markets du jour. It's the ability to think through the rippling effects that accompany those kinds of decisions -- spiraling energy costs and distribution challenges related to getting products to market on time, at the right quality, and in the right packaging — that separates good leaders from aspiring ones.
"It's the old Wayne Gretzky thing," Parker says, invoking the hockey great who, when asked to explain his scoring touch, said he doesn't go to the puck, he goes to where the puck is going.
Leading the organization to the puck is exactly what industry leaders need to do to meet strategic objectives, notes Eric Mittelstadt, CEO of the National Council for Advanced Manufacturing (NACFAM) and a judge in MA's PM 50 Awards program. But they also must make sure employees across the manufacturing enterprise have the freedom to think outside the box to meet organizational goals.
Mittelstadt points to Sun Hydraulics, a 37-year-old manufacturer of screw-in hydraulic cartridge valves and manifolds for industrial and mobile markets, as one of the more enlightened companies in this regard. Whenever a manager wants to make a capital expenditure, all he needs is the approval of two peers.
"If a plant floor guy can convince two peers — a lath operator, for example — that buying equipment is the right thing to do, he does not have to ask for [corporate] approval."
Why Operational Excellence is Critical
The Toyota Production System is a paradox. On the one hand, every activity, connection, and production flow in a Toyota factory is rigidly scripted. Yet, at the same time, Toyota's operations are enormously flexible and responsive to customer demand. How can that be? ...at Toyota it's the very rigidity of the operation that makes flexibility possible. That's because the company's operations can be seen as a continuous series of controlled experiments. Whenever Toyota defines a specification, it is establishing a hypothesis that is then tested through action. This approach — the scientific method — is not imposed on workers; it's ingrained in them. And it stimulates them to engage in the kind of experimentation that is widely recognized as the cornerstone of a learning organization.
This description of the Toyota Production System (TPS), in a Harvard Business Review study published in September 1999, epitomizes the manufacturing industry's quest for operational excellence. Call it lean, Six Sigma, kaizen, or something else; the goal is to continuously fine-tune manufacturing processes, removing waste and increasing efficiency and productivity that bolster the top and bottom lines. Seeking a quick fix, many companies attempt to emulate TPS without understanding its essence: bottom-up communication that informs continuous change within the context of repeatable, standardized business processes that can be scaled across the manufacturing enterprise.
At its core, TPS equals management values and beliefs, noted Ken Kreafle, general manager of vehicle production engineering at Toyota Motor Engineering & Manufacturing of North America, at a recent digital manufacturing conference. "Standardization is the building block," he told the audience. "Find problem, fix problem, keep problem from coming back."
Many companies fail in their continuous improvement programs by blindly throwing technology at the problem.
"The principles are timeless, they lead the entire activity," Kreafle said. "The tools are always changing." At Toyota, people, processes, and principles lead the way. "Toyota is marinated in this thinking and philosophy," he said, noting that while not all functional groups and facilities work the same way, all activities are centered around the "same thinking, foundation, and focus."
Douglas A. Engel, national manufacturing practice leader at Deloitte and a Progressive Manufacturing 50 Awards judge, says many manufacturers don't realize that the underlying methodologies of continuous improvement are merely facilitators of operational excellence, not the end game in themselves.
"They fail because they often times believe that best practices and tools like Six Sigma are going to make them better," Engel says. "It still takes leadership to align the organization more broadly."
Many companies that apply these methodologies get so hung up on philosophy that they lose sight of the big picture. Engel recalls a recent meeting with the executive team of a multi-billion dollar manufacturing company that was steadily losing money. The COO, he says, talked about the company's hundreds of Six Sigma Black Belts and Green Belts and the performance improvements they were contributing. The CFO talked about the profitability that the performance improvements were contributing on the activity level. Still, the company remained mired in the red. "I said to him, 'I'm intrigued that you have decomposed something that is getting you some benefits but not getting you to profitability,'" Engel says.
The real problem, he notes, was that the company's cost of capital was too high. Too much working capital was tied up in receivables. Moreover, the company's highly engineered product needed to get out the door faster, and without a good handle on customer requirements (a situation exacerbated by its capital constraints) the company was doing an inordinate amount of rework. To fix the problem, Engel offers, requires only one good Six Sigma Black Belt. Companies like this "get hung up on incrementalism and miss big things," he concludes.
To Manufacturing Insights' Parker, operational excellence comes down to procedural consistency. "If you are trying to achieve operational excellence, your first objective should not be to improve cycle time costs or service levels," he says. "Your first objective is to attack variability."
Parker points to a recent Manufacturing Insights study of 800 manufacturers across the world. Some 45 companies with mature lean programs showed better revenue growth and profitability than the overall population. Interestingly, their inventory levels in certain quarters were even with those of the rest of the population. But even more revealing: their ups and downs were modest — almost a flat line — compared with the others' fluctuations.
"Talk to a company that has achieved operational excellence and you find that they know if they change the process a certain way they will get certain behaviors," Parker points out. "So, in this way they keep variability in a very modest range."
Achieving this consistency comes down to the physics of control loops. "You have one balancing, the other reinforcing," Parker explains. "The one balancing always seeks a process to bring things back into balance; the reinforcing one says if you are doing something good, do something to accelerate it."
At Managing Automation's Progressive Manufacturing Summit and PM 50 Awards program in Las Vegas on June 12-14, we will illuminate the industry's best practices in operational excellence and each of the seven other disciplines of progressive manufacturing. We will also showcase new tools and techniques that can help manufacturers revitalize their competitive spirit, improve their operational efficiency, and generate better results no matter how or where they do business.